Supreme Court New South Wales Medium Neutral Citation: The Owners - Strata Plan No 76171 v Warrenby Pty Limited [2012] NSWSC 1531 Hearing dates: 4 December 2012 Decision date: 05 December 2012 Jurisdiction: Equity Division - Technology and Construction List Before: Stevenson J Decision: Notice of Motion for summary judgment dismissed with costs Catchwords: PRACTICE AND PROCEDURE - summary judgment - application to dismiss proceedings against third defendant - application to strike out pleadings Legislation Cited: Civil Procedure Act 2005 Federal Court of Australia Act 1976 (Cth) Home Building Act 1989 Uniform Civil Procedure Rules Cases Cited: Cosmos E-C Commerce Pty Ltd v Bidwell & Associates Pty Ltd [2005] NSWCA 81 Dey v Victorian Railways Commissioners [1949] HCA 1; (1949) 78 CLR 62 Expo-Net Danmark A/S v Buono-Net Australia Pty Ltd (No 2) [2011] FCA 710 General Steel Industries v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125 Simmons v Protective Commissioner of NSW [2012] NSWSC 455 Spencer v Commonwealth [2010] HCA 28; (2010) 241 CLR 118 Theseus Exploration NL v Foyster [1972] HCA 41; (1972) 126 CLR 507 Webster v Lampard [1993] HCA 57; (1993) 177 CLR 598 Wickstead v Browne (1992) 30 NSWLR 1 Category: Interlocutory applications Parties: The Owners - Strata Plan No 76171 (plaintiff) Warrenby Pty Limited (first defendant) Michael Khoury (second defendant) Rodney Khoury (third defendant) Representation: Counsel: J J Young (plaintiff) G P George (third defendant) Solicitors: Doyle Edwards Anderson Lawyers (plaintiff) Bannermans Lawyers (first and second defendants) DTA Lawyers (third defendant) File Number(s): SC 2012/302336 Publication restriction: Nil EX TEMPORE Judgment Introduction 1This is an application by the third defendant, Mr Rodney Khoury, that the summons be dismissed as against him under Uniform Civil Procedure Rules ("UCPR") r 13.4, or alternatively, that the relevant paragraphs of the pleadings be struck out under UCPR r 14.28. 2The matter was first listed before me on 15 November 2012. On that occasion, I adjourned the proceedings until 4 December 2012 to give the plaintiff an opportunity to serve notices to produce and subpoenas. I directed that the plaintiff file any further evidence arising out of the service of those documents by 27 November 2012. That has been done. Background 3The plaintiff is the Owners Corporation of a building at Dee Why, comprising of thirty-one residential apartments and seven retail shops ("the Building"). By contract dated 4 November 2003, or alternatively 13 November 2003, made between the first defendant, Warrenby Pty Limited ("Warrenby"), and the then owner and developer of the land, Merrag Pty Limited (now in liquidation) ("Merrag"), Warrenby agreed to construct the Building for $4.74 million. 4Upon registration of the relevant Strata Plan on 20 December 2005, the plaintiff became the successor in title to Merrag in relation to the common property in the Building. 5The plaintiff claims there are defects in the Building caused by building work "involved in the design and/or construction...performed in breach of the statutory warranties", implied into the alleged building contracts pursuant to s 18B of the Home Building Act 1989 ("the Act"). 6The plaintiff brings the proceedings against Warrenby, its director Mr Michael Khoury (who is the brother of Mr Rodney Khoury) and Mr Rodney Khoury. Mr Rodney Khoury was a director of Merrag. Each of the defendants was a licensed builder under the Act. 7The plaintiff pleads the same cause of action against each defendant. The allegation against Mr Rodney Khoury (which correspond to those against Warrenby and Mr Michael Khoury) are to be found in paragraphs 28 and following of the Technology and Construction List Statement annexed to the Summons. 8The allegations against Mr Rodney Khoury are that: - (a)he was a party to an agreement with Merrag, or a third party (with Merrag being for that purpose a "non-contracting owner" for the purposes of s 18D(1a) of the Act) pursuant to which he designed and constructed the building; (b)the relevant work was "residential building work" (there was no dispute before me about that matter); (c)the statutory warranties referred to in s 18B of the Act were implied into that agreement; (d)the plaintiff is a successor in title to Merrag for the purposes of s 18C and/or s 18D of the Act; and (e)the plaintiff is entitled to the same rights as Merrag against Mr Rodney Khoury in respect of those statutory warranties. 9It is common ground that such a building contract could be oral. Section 7 of the Act provides that such a contract must be in writing. However, s 10(1) of the Act makes clear that the consequence of such contract not being in writing is that the builder cannot enforce it; nonetheless, the builder remains liable under it. 10It is also common ground that the time limit under s 18E of the Act for the plaintiff to bring these proceedings was, at the relevant time, seven years from completion of the work. 11The Strata Plan was registered on 20 December 2005. Completion of the work, obviously, took place some time before then. Thus if the proceedings are struck out now, the plaintiff is likely to be statute barred from bringing them again (s 91 of the Civil Procedure Act 2005). 12The expiration of the limitation period would have been a matter for the plaintiff to consider when deciding whether or not to make an application for preliminary discovery under UCPR pt 5, r 5.3. No such application has been made. The application under UCPR r 14.28 13In my opinion, the pleading is not liable to be struck out under UCPR r 14.28. 14For the purpose of considering such an application, the factual allegations in the impugned pleadings must be taken to be accepted. There was no dispute before me about that proposition. 15In my opinion, the matters pleaded, assuming that they can be proved: - (a)disclose a reasonable cause of action; (b)do not have a tendency to cause prejudice, embarrassment or delay; and (c)are not an abuse of the Court's process. The application under UCPR r 13.4 16The real complaint made by Mr Rodney Khoury is under this rule, namely that the proceedings are liable to be dismissed because no reasonable cause of action is disclosed. 17In General Steel Industries v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125, Barwick CJ in the well known passage at 128-129 said that: - "...the jurisdiction summarily to terminate an action is to be sparingly employed and is not to be used except in a clear case where the Court is satisfied that it has the requisite material and the necessary assistance from the parties to reach a definite and certain conclusion." 18The test has been variously expressed, including "so obviously untenable that it cannot possibly succeed" and "manifestly groundless": General Steel at 129 per Barwick CJ. See also Dey v Victorian Railways Commissioners [1949] HCA 1; (1949) 78 CLR 62 at 91 per Dixon J; Theseus Exploration NL v Foyster [1972] HCA 41; (1972) 126 CLR 507 at 514; Webster v Lampard [1993] HCA 57; (1993) 177 CLR 598 at 602-603; Cosmos E-C Commerce Pty Ltd v Bidwell & Associates Pty Ltd [2005] NSWCA 81 at [37]-[38]. 19My attention has been drawn to the observations of the Court of Appeal in Wickstead v Browne (1992) 30 NSWLR 1 at 11 where Handley and Cripps JJA said: - "By launching [an application of the kind now before me] a defendant undertakes the burden of establishing that there is no triable issue. On such an application the defendant bears the onus of proof and where the facts are particularly within the defendant's knowledge the plaintiff's action should not be dismissed because of gaps in the case if the necessary evidence might be obtained as a result of discovery or interrogatories." 20The question of summary judgment application by a defendant was recently considered by the High Court in Spencer v Commonwealth [2010] HCA 28; (2010) 241 CLR 118. The Court was there considering the provision in the Federal Court of Australia Act 1976 (Cth) corresponding to UCPR r 13.4. Unlike UCPR r 13.4, s 31A of the Federal Court of Australia Act provides, in terms, that a proceeding need not be "hopeless or bound to fail" to have no prospects of success. 21Hammerschlag J in Simmons v Protective Commissioner of NSW [2012] NSWSC 455 (at [62]) recently opined that the combination of the word "reasonable" in UCPR r 13.4 and the provisions of s 56(2) of the Civil Procedure Act has the effect that the approach that this Court should adopt in exercising the power under UCPR r 13.4 is the same as that described by the High Court in Spencer. 22In Simmons, Hammerschlag J reviewed a number of decisions of the Federal Court following upon the High Court's decision in Spencer. His Honour referred to Bennett J's "useful and concise summary of what emerges from Spencer" in Expo-Net Danmark A/S v Buono-Net Australia Pty Ltd (No 2) [2011] FCA 710 as follows: - (1)there is a discretion reposed in the judge hearing the application to grant summary judgment; (2)the power should be attended with caution and involve a high degree of certainty about the ultimate outcome of the matter if it were to go to trial; (3)more complex cases are unlikely to be capable of being resolved by summary judgment without discovery and oral evidence; and (4)the relevant provision requires that a practical judgment be made, and the inquiry is whether there is a reasonable prospect of prosecuting the proceedings, not whether a certain and concluded determination can be made that the proceedings would necessarily fail. 23In the application before me, Mr Young, who appeared for the plaintiff, pointed out that Mr Rodney Khoury has not denied being a builder, despite being given a number of opportunities to do so. 24One of those opportunities was when, before the commencement of these proceedings, the plaintiff's solicitor wrote to Mr Rodney Khoury, inviting him to say whether or not he had been engaged by Merrag to design and/or construct the building. Ultimately, Mr Rodney Khoury's solicitors replied declining to make any response to that inquiry, and observing that the plaintiff's solicitors had "erroneously assume[d] our client has an obligation to assist your client". 25Further, Mr Rodney Khoury has sworn an affidavit on this occasion in which he does not deny being a party to an agreement with Merrag acting to design or construct the building. 26It is true that Mr Rodney Khoury was not obliged to respond to the plaintiff's solicitor's letter, and that it was not for him to assist the plaintiff prove its case. 27However, now that Mr Rodney Khoury has brought this application, he has the onus of showing that the plaintiff has no reasonable prospect of prosecuting the proceedings and, in particular, that the plaintiff has no reasonable prospect of showing that Mr Rodney Khoury was a party to a contract with Merrag or another, pursuant to which he (a licensed builder) designed and constructed the building. 28There is some indication in the evidence before me that there may have been a contract of the kind the plaintiff alleges. 29In the letter written by the plaintiff's solicitor to Mr Rodney Khoury to which I have referred, the plaintiff's solicitor stated amongst other things: - "I am instructed that you may have been engaged by Merrag to design and/or construct this development. Susan Khoury [who I am told is the wife of the second defendant Mr Michael Khoury and the director of Warrenby] was present at the most recent general meeting of the owners corporation and she nominated you as the builder." 30Mr Rodney Khoury's solicitor responded to that letter expressing Mr Rodney Khoury's puzzlement at the request for information about his involvement, "when the request is based on nothing more than a gratuitous comment at an owners corporation meeting". 31Significantly, Mr Rodney Khoury did not instruct his solicitors to deny that Ms Susan Khoury had made the comment attributed to her. 32The plaintiff's solicitor wrote a corresponding letter of inquiry to Warrenby and Mr Michael Khoury. The solicitor acting for those parties, Bannermans Lawyers, wrote to the plaintiff's solicitors on 26 September 2012 making certain allegations. 33I infer that that letter was written on instructions from Mr Michael Khoury and reflects the evidence that Mr Michael Khoury will give in these proceedings. 34In their letter, Bannermans Lawyers said that their instructions were that Warrenby and Mr Michael Khoury "were not the builders of the Development, nor were they responsible for its design or construction". The letter continued: - "My clients' involvement was at the beginning of the project. In May 2004, my clients were permanently thrown off the site, after a dispute arose. Michael Khoury was not involved in the balance of the works, neither as a Director of Warrenby or his personal capacity... After being thrown off the site in May 2004, my clients cannot definitively comment about the identity of the builder but to say [sic] it would appear that Rodney Khoury performed the works and held the relevant builder's licence at the time. Therefore, in all likelihood, the building works were carried out under that licence. Michael Khoury and Warrenby were not paid by Merrag Pty Ltd or Rodney Khoury to do building works at the site... I suggest making contact with Rodney Khoury regarding the documents. Since the dispute, Michael has had very little contact with Rodney Khoury." 35My attention has also been drawn to letters written to Merrag in late October 2005 by various subcontractors which are marked to the attention of Mr Rodney Khoury. 36Further, on 21 November 2005, a solicitor known as Ms Mary Khoury, who was evidently acting for Merrag on the sale of one of the units in the Building, wrote to the purchaser's solicitors stating: - "We advise that a meeting first took place on site between your clients...and our client Rodney Khoury...The meeting was arranged by your client...who called Rodney Khoury to access the building in order to discuss the position and finishes". 37On 16 June 2008, Mr Kevin Hitchcock, evidently then an owner of one of the units in the Building, and who described himself as the chairman of the Building Executive Committee, wrote to Warrenby and Mr Michael Khoury stating: - "As discussed in our previous email there are a number of warranty issues we would like investigated and rectified. All of these issues have been raised at different times with both George and Rodney Khoury, in our belief that as the builders on site they were responsible for correcting faulty work. At no time did they indicate that another member of the family was listed as the licensed builder responsible." 38In my opinion, this material points to the conclusion that the plaintiff has some prospect, perhaps some significant prospect, of showing that Mr Rodney Khoury was a party to contracts of the kind referred to in the pleadings. 39It is certainly true, as Mr George, who appeared for Rodney Khoury, emphasised, that there were indications the other way. 40First, the November 2003 contracts themselves were clearly between Warrenby and Merrag. 41Further, my attention has also been drawn to the undated email from Mr Brad Belcher, who I am told was then the chairman of the Executive Committee of the Strata Plan. That email was addressed to Mr Michael Khoury, and complained of cracking and water ingress at the Building. 42Mr Belcher said amongst other things: - "Firstly, during our conversation yesterday you indicated to me that Rodney was the licensed builder and that I should contact him to discuss the issues. I telephoned Rodney this morning who indicated that he is not the licensed builder listed for the above mentioned property as stated by you, and that you are the listed builder. We concur with this, and would like to bring the following issues to your attention [Mr Belcher went on to refer to various cracks and other problems with the building]." 43On 21 February 2011 Mr Michael Khoury completed a "Proof of Debt" form in the liquidation of Merrag in which he stated that Warrenby was a creditor of Merrag in the sum of $492,000. The particulars of debt referred to in that proof of debt refer to a contract of 4 November 2003; evidently one of those to which I have referred. 44That should be read together with a note Mr Michael Khoury appears to have made in which he recorded that Warrenby entered into a contract with Merrag to do the work, that Warrenby has attended to the warranty and defect works and is still honouring its obligations under the relevant warranty. 45There is a tension between that evidence and the material to which I have referred, concerning the allegation that Mr Michael Khoury was "thrown off the site" in May 2004. 46However, this is not the occasion upon which I can or should resolve that evidentiary conflict. This is very much a case where discovery, oral evidence and cross-examination are likely to be needed, in order that the issues be resolved. Conclusion 47Overall, in those circumstances, I am not satisfied that the third defendant has sustained his onus to show that the proceedings should be dismissed. 48The Notice of Motion for summary judgment is dismissed with costs. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 12 December 2012